Mayer Denies Yahoo Stockholders Cash from Alibaba Deal
Ashish is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Yahoo (NASDAQ: YHOO) recently announced in an 8-K that a “review” by the new CEO Marissa Mayer might change previously announced plans for returning the cash proceeds from an Alibaba sale to shareholders. While we believe that it is a good decision for the long-term sustenance of the company, it could hurt the stocks in the short term. Some downside pressure to the stock is already seen as shares dropped 5% last Friday. We think that Yahoo with its “Product CEO” is looking to invest in the business and make material acquisitions.
1) Yahoo started as a “product” intensive company with its search engine and Yahoo! Mail products. With Marissa Mayer turning Yahoo back to its roots we believe that Yahoo needs a strong cash position. We expect to see continued improvements and a renewed focus on Yahoo! products helping Yahoo! to make a strong product moat. Yahoo may also work towards retooling several of its existing products for mobile with the additional money.
2) We could see several value adding acquisitions in the near term, which could generate positive market sentiments adding credibility to Yahoo’s strategy.
3) One of the main concerns following the appointment of new CEO was that Yahoo would need to step down its media strategy (which was favored by the interim CEO Ross Levinsohn) to focus more on the products. We believe that the additional cash could help Yahoo to develop its product strategy while sustaining and maybe even developing its media strategy.
4) She had been an important part of Google’s (NASDAQ: GOOG) products strategies including maps, Gmail, and local services. We believe that Yahoo can’t find a better alternative than Mayer to put their bets on right now.
1) A bad reputation in the market is likely to follow as Yahoo did not deliver what it promised to its shareholders. The stock prices have already taken a fall following this sentiment.
2) Yahoo is taking a high risk as its each and every action will be closely scrutinized following this move and any wrong move will result in price volatility for the stock. However, on the positive side if the strategy works, the rewards may outweigh risks significantly.
3) Yahoo might not see the effects of this move coming till around 2-3 Years as restructuring efforts usually take time. We believe that it could dampen the interest of short term investors in the stock.
Yahoo has been continuously laying stress on shifting to “product” strategy with the appointment of its new CEO. Increasing money inflow in R&D and M&A was an unstated fact that was bound to happen. We believe that this move is a step in the right direction as Yahoo is focusing on developing new products rather than cutting spending budgets, which seemed like the thing to do for a company out of ideas. We believe that with the additional money, Yahoo can step up its engineering investments to effectively compete with Google and Facebook (NASDAQ: FB) for users and an advertiser base (that is increasingly employing technology and data to drive ad buying decisions). While Yahoo may not immediately become an “internet sweetheart” it once was, we believe that this is a move in the right direction and it provides a buying opportunity for long term investors.
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The article was co authored by Rahul Agarwal and Ashish Sharma. Both have no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook and Google. Motley Fool newsletter services recommend Facebook, Google, and Yahoo!. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.